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TTI urges ATO to clarify rental property tax guidance
Last November, the ATO updated its tax ruling on rental property deductions, signalling a shift in its treatment of rental tax deductions for properties also used as holiday homes.
In a submission to the government, The Tax Institute (TTI) said the newly released tax ruling Draft TR 2025/D1, and practical compliance guides PCG 2025/D6 and PCG 2025/D7, were a “useful clarification” of the tax office’s interpretation of relevant laws.
However, TTI warned that the highly technical nature of the draft guidance could cause confusion for taxpayers, and urged the ATO to clarify its explanatory materials.
“The highly technical nature of the draft PAG may be considered confusing or difficult to follow, and would benefit from the inclusion of visual representations or clearer explanations of the application of the law to assist taxpayers in complying with their obligations,” its submission read.
“The draft PAG [public advice and guidance] contains some terms, explanations and examples that we consider may be confusing or misleading to taxpayers, and which could be replaced with more appropriate descriptors.”
TTI also called on the ATO to give a more detailed explanation of the capital gains tax (CGT) implications of common rental situations.
In particular, the industry body said the ATO’s guidance should address the CGT implications of renting out part or all of a main residence, and of non-deductible expenses related to holiday homes and rental properties.
“Where costs are non-deductible under section 26-50, taxpayers and their advisers will logically ask, ‘Can these costs be included in the cost base?’ The draft PAG is silent on this issue. We suggest the ATO clarify the CGT treatment of ownership costs that are nondeductible,” TTI’s submission read.
It called on the ATO to clarify whether or not non-deductible ownership costs formed part of the third element of the cost base of the property.
Furthermore, the TTI called for further clarification on the availability of the ‘six-year absence’ rule when renting out a property. Typically, when a taxpayer has moved out of their primary residence and rented it out, they could still treat it as their main residence and not pay CGT for up to six years.
However, the TTI noted that this rule did not apply when taxpayers temporarily rented out their primary residence, such as through an online platform. Instead, the apportionment role in section 118-190 of the ITAA 1997 applied, the industry body noted.
“Where a home is rented out (often through a sharing economy platform) and has not ceased to be the taxpayer’s main residence, there is a common misconception among taxpayers and some practitioners that there are no CGT implications, because the period of rental does not exceed six years,” the submission noted.
TTI called on the Tax Office to clarify tax implications of these “common situations”, such as when a taxpayer rented out a room in their primary residence while continuing to live there, or rented out their entire home for a short period while the dwelling continued to be their main residence.
This article was first published in SPI's sister publication Accountants Daily.